Best Tips To Avoid Being Stopped Out In Futures?

[Bugsy]

Many traders are trying to trade futures with ridiculously small accounts, they try to over compensate for being insanely over leveraged by using ridiculously small stops. HFTs are very well versed in pain levels, where the clustered stops are, the common entry/exit signals non innovative traders use & where they can spike the volatility to capitulate the above mentioned weak hands from their positions, their business is booming.

There used be a lot more traders making large profits, you know crossing that 7 digit zone or getting close to it. Most of them eventually gave it back but at least a lot more traders had been way up at some point. Seems like that has become a rarity in this era. So what changed?

The SEC PDT rule ($25k) is probably the catalyst. The bar to trade futures was lowered at the same time. Than we had HFTs around 2005 that took over the bid-ask spread, yet many newbies want to compete in that 1-2 tick area - good luck with that. What changed is the least capitalized & the least experienced started competing directly against the opposite.

I got eaten alive by the HFT's in my initial run. Either I put the stop too close and got stopped out, or I set a cataclysmic stop for worst case scenario, sick and tired of being hit by the HFT's, and thinking that they were just trying to stop me out I ended up not seeing the market had actually turned against me and my cataclysmic stop was eaten.

I think my 4 biggest leaks were as follows (some being mentioned here by others):

1. Bad entry/ exit strategies
2. Not knowing/ reading the market players I was actually up against in a zero sum game
3. Trading too frequently (and being eaten alive by round trip commissions)

The 4th was probably the worst, and dumbest, and something I haven't mentioned. I was trading WTI crude oil futures for that $15,000 I spoke of. It was around June of 2016 shortly after oil had tanked down to $26 a barrel before rising back up. I was desperately soaking up every aspect of fundamental knowledge in the global oil industry I could find and trying to combine it with TA/ charting analysis. So even though the market was rising, with everything I felt I knew, I felt the fundamentals pointed to an oversupply of oil. So of course my mind began to see every bearish signal it could zero in on in the charts as the point "the market is finally shifting in line with the fundamentals". Confirmation bias became my undoing.

What I didn't take into account is someone like me will never have all the fundamentals required to make decisions based so strongly on fundamentals. There are too many unknown factors like manipulation and other aspects I cannot see. Like for instance, what I didn't know then was that Glencore was buying a huge amount of contracts and storing them on barges in international waters to drive the price up with retail investors. I should have relied on TA alone and traded the current long term trend of long rather than trying to find the short trade in every pattern. Between that, and trading very short time frames against the HFT's I got eaten alive. Learning curve I suppose.

 

[Bugsy]

To everyone who has replies with so much great advice I very much appreciate it. To many gems from so many here and I am taking them all to heart. Not saying this to end the discussion and any others from replying. Just wanted to say thank you to all thus far.

 

[comagnum]

One approach to consider is trading stock index ETFs (QQQ, SPY, IWM, MDY, DIA, etc) and/or mega cap stocks (SP 100). The reason is you can size down smaller which will allows you to stay locked onto winning positions. The spreads are real tight on most of them and the liquidity is massive. You can give yourself more wiggle room without eating more capital if your trade sours.

Plenty of traders that don't well with futures have had success with equities. Personally, I could not imagine anyone jumping into futures with having at least a few years of rising profits from trading equities first.

Trading smaller positions equates to making more $ while spending far less sweat equity - another paradox of trading that runs counter to the crowds group think.

 

[Bugsy]

One approach to consider is trading stock index ETFs (QQQ, SPY, IWM, MDY, DIA, etc) and/or mega cap stocks (SP 100). The reason is you can size down smaller which will allows you to stay locked onto winning positions. The spreads are real tight on most of them and the liquidity is massive. You can give yourself more wiggle room without eating more capital if your trade sours.

Plenty of traders that don't well with futures have had success with equities. Personally, I could not imagine anyone jumping into futures with having at least a few years of rising profits from trading equities first.

Trading smaller positions equates to making more $ while spending far less sweat equity - another paradox of trading that runs counter to the crowds group think.

That's actually a really good idea. Would also help control uncontrollable factors one would face on single securities like buyouts while shorting. I started to try out call/ put options on USO recently, but when the crypto market went south I pulled everything out in anticipation of buying low priced Ethereum. Indice ETF's may be the better approach to commodities ETFs, though this market is so wild it feels like a crap shoot. That being said, one could have made a killing buying calls on a DIA ETF during 2017. Thanks for the suggestion.

 

[TDMA]

Here's one aspect I always struggle with. They say that using the longer term time frame of any chart is more reliable for signals than the lesser time frame, but the lesser time frames are what create the signals on the longer time frame. So where's the breakeven point on which one becomes more essential to basing your entry on? Thanks.

The breakeven point is also very simple, the same strategist gave me a copy of this. The first is the breakeven point if you take someone else's 10,000+ hours of experience wrapped up in a methodology (Turtles, Tesseract), and follow the rules exactly. The second is the result after your 10,000+ hours of trial and error to find a combination of signals.

The markets have been designed in such a way that all timeframes line up at very few points, enough to make you put your capital to work, but not enough to make any material profits on a non-leveraged basis. You then have pressure points, on a 60mn trade you could have 1dy bouncing off resistance in your direction, but that produces less return than 1dy and 1wk being aligned to your direction, which is very rare. The shorter timeframes should always align, however within a greater margin of error, caused by inconsistent third party fintech architecture, meaning technical signals are less reliable. The two trading styles are to fight the markets (for income) or to wait for the perfect alignment (for capital), the latter are as follows.

100ms chart - one trade per hour
1sc chart - one trade per day
1mn chart - one trade per week
5mn chart - one trade every two weeks
60mn chart - one trade per month
240mn chart - one trade per quarter
1dy chart - one trade per year

Given that outside of a bank no one has that level of patience, or that level of capital for leverage they trade on imperfect alignment. Knowing when that alignment has a risk/reward balance is experience, and that is where your 10,000+ hours go. Ultimately, all strategies work, however given that they are so infrequent many try multiple strategies, the problem with that is if you are distracted by one you may miss the other, and materially reduce your profitability.

I tried adjusting the methodology to add an extra strategy on imperfect alignment, but the best I achieved was 50/50 balance win to loss, so now just stick with the perfect alignment strategy. Which means I have even more time available than I did before, quite annoying. You thought the 10,000 hours is actual trading, over a decade on a 60mn timeframe you would only expect 100 aligned trades, it will take you anywhere from 30-50 trades to confirm the strategy, and only at 70-100 trades will you have the knowledge to start making consistent profits.

Then of course what you will do is try and leverage it by overtrading, breaking the strategy, then you will move to lower timeframes with the same strategy, not understanding the margin of error increases, which requires aligned higher timeframes too offset the inconsistencies, at which point more or less everyone gives up. All roads lead to Rome.

 

[Xela]

Confirmation bias became my undoing.

The fact that you're aware of it probably speaks comparatively highly of your long-term future chances, though: that's true of many people, I think, many of whom never recognize it.

I should have relied on TA alone

My guess is that you're right about that, too.

 

[MrScalper]

Hello. Would anyone mind sharing how they avoid being stopped out in futures trading? It's hard finding a balance on safety for a stop loss that isn't close enough to be stopped out while also not setting your stop loss so far out that you're shooting yourself in the foot. I got eaten alive before in futures when I was trading and lost about $15,000 about a year and a half ago. Not giving up, and trying to plug the leaks that I know were pivotal in my losses before. This was one of my leaks that hurt me quite a bit. Thank you for any feedback in advance.

you can not avoid being stopped out..at least some of the time..only fools think otherwise!!

i have not seen any answer that gives you something concrete to work on..all just the same old generalities!!

before you trade any market..it is wise to first learn how to read charts..for..without the ability..you might as well be..

"pissing up a rope"

have a good idea who the new RN is now..it is so obvious

 

[wrbtrader]

Hello. Would anyone mind sharing how they avoid being stopped out in futures trading? It's hard finding a balance on safety for a stop loss that isn't close enough to be stopped out while also not setting your stop loss so far out that you're shooting yourself in the foot. I got eaten alive before in futures when I was trading and lost about $15,000 about a year and a half ago. Not giving up, and trying to plug the leaks that I know were pivotal in my losses before. This was one of my leaks that hurt me quite a bit. Thank you for any feedback in advance.

Easiest solution is to just improve your entry strategy and/or improve your analysis of the price action you're trading.

Anything beyond that depends upon you disclosing more info about how you're managing your trades, trading system itself and what you're trading. Most leaks as you've refer to as are words used by manual traders...traders that have discipline issues in sticking with the trading plan.

wrbtrader

 

[volpri]

The breakeven point is also very simple, the same strategist gave me a copy of this. The first is the breakeven point if you take someone else's 10,000+ hours of experience wrapped up in a methodology (Turtles, Tesseract), and follow the rules exactly. The second is the result after your 10,000+ hours of trial and error to find a combination of signals.

View attachment 184427

The markets have been designed in such a way that all timeframes line up at very few points, enough to make you put your capital to work, but not enough to make any material profits on a non-leveraged basis. You then have pressure points, on a 60mn trade you could have 1dy bouncing off resistance in your direction, but that produces less return than 1dy and 1wk being aligned to your direction, which is very rare. The shorter timeframes should always align, however within a greater margin of error, caused by inconsistent third party fintech architecture, meaning technical signals are less reliable. The two trading styles are to fight the markets (for income) or to wait for the perfect alignment (for capital), the latter are as follows.

100ms chart - one trade per hour
1sc chart - one trade per day
1mn chart - one trade per week
5mn chart - one trade every two weeks
60mn chart - one trade per month
240mn chart - one trade per quarter
1dy chart - one trade per year

Given that outside of a bank no one has that level of patience, or that level of capital for leverage they trade on imperfect alignment. Knowing when that alignment has a risk/reward balance is experience, and that is where your 10,000+ hours go. Ultimately, all strategies work, however given that they are so infrequent many try multiple strategies, the problem with that is if you are distracted by one you may miss the other, and materially reduce your profitability.

I tried adjusting the methodology to add an extra strategy on imperfect alignment, but the best I achieved was 50/50 balance win to loss, so now just stick with the perfect alignment strategy. Which means I have even more time available than I did before, quite annoying. You thought the 10,000 hours is actual trading, over a decade on a 60mn timeframe you would only expect 100 aligned trades, it will take you anywhere from 30-50 trades to confirm the strategy, and only at 70-100 trades will you have the knowledge to start making consistent profits.

Then of course what you will do is try and leverage it by overtrading, breaking the strategy, then you will move to lower timeframes with the same strategy, not understanding the margin of error increases, which requires aligned higher timeframes too offset the inconsistencies, at which point more or less everyone gives up. All roads lead to Rome.

 

[TDMA]

View attachment 184436

View attachment 184437

I see the highly intelligent people who provide value added advice have come out to play, very good. I was thinking about arranging an ET newbie access to the fintech and see if couldn't get them to the same profit level as the 10,000 hour traders here within one month. Then it became clear, there really are better things to do with my time, they're all yours.